PERSONAL LINES INSURANCE FINAL EXAM ACTUAL
2026/2027 QUESTIONS AND SOLUTIONS RATED A+
✔✔The Director gives approval to an insurer to do business in Arizona with a certificate
of
A) attachment
B) adhesion
C) authority
D) admittance - ✔✔C) authority
Explanation: Insurers must hold a certificate of authority from the Director before they
can transact insurance business in Arizona. A certificate of authority indicates that a
company meets the state's standards to operate as an insurer and to transact
insurance.
Reference: See State Supplement
✔✔If a vehicle collides with a boulder that came tumbling down the side of a mountain,
what coverage would pay for the damage?
A) Collision
B) Uninsured motorist
C) Other than Collision
D) Supplemental payments - ✔✔C) Other than Collision
Explanation: Other than collision coverage pays for direct and accidental losses to a
vehicle including colliding with falling objects such as a boulder.
Reference: 8.12.1 in the License Exam Manual
✔✔If death results from a compensable injury, the maximum amount of coverage paid
under workers compensation for burial expenses is:
A) $1,000
B) $4,000
C) $5,000
D) $2,000 - ✔✔C) $5,000
Explanation: If death results from a compensable injury, the maximum amount of
coverage paid under workers' compensation for burial expenses is $5,000.
Reference: See State Supplement
,✔✔Jeffrey bought a car yesterday for his daughter to drive to school and her job. Under
Jeffrey's automobile policy, this car is considered
A) a nonowned automobile
B) an uninsured automobile
C) a temporary substitute automobile
D) an owned automobile - ✔✔D) an owned automobile
Explanation: A newly acquired automobile is an owned automobile that must be an
eligible vehicle. For any coverage except Coverage for Damage to Your Auto, this car
will have the broadest coverage provided for any of the cars listed on the declarations
until it is added to the policy. It must be insured within 14 days after the insured
becomes the owner.
Reference: 8.4 in the License Exam Manual
✔✔A contract in which one insurer cedes all or part of a risk to another insurer is known
as:
A) assuming insurance
B) retro insurance
C) reinsurance
D) a participating policy - ✔✔C) reinsurance
Explanation: In a reinsurance contract, an insurer protects itself from loss or liability
arising from an original contract of insurance by insuring itself through another insurer.
Reinsurance is the spreading or sharing of a risk too large for one insurer by ceding part
of the risk to another company or reinsurer.
Reference: 1.5.4 in the License Exam Manual
✔✔A dwelling policy can be used to insure all of the following EXCEPT
A) an apartment building with 6 units
B) rental homes
C) lake cabins
D) duplexes - ✔✔A) an apartment building with 6 units
Explanation: A dwelling policy may be used to insure a building with up to 4 units.
Reference: 6.3.2 in the License Exam Manual
✔✔Medical Payments Coverage is Part B in the personal automobile policy. All of the
following statements about medical payments coverage are correct EXCEPT
,A) coverage is provided for the named insured if hit by a car while walking a road
B) Part B covers reasonable expenses for services incurred within 5 years of the date of
injury
C) no coverage is available if the vehicle is being used as a residence
D) coverage is available if an injury occurs while getting into or out of a vehicle - ✔✔B)
Part B covers reasonable expenses for services incurred within 5 years of the date of
injury
Explanation: Part B covers reasonable and necessary medical and funeral expenses
incurred within the first 3 years- not 5 years- of the date of injury, regardless of fault.
Reference: 8.8.1 in the License Exam Manual
✔✔John's dog bites a friend who is visiting John's house. Which part of John's
homeowners policy, if any, would cover the visitor's ensuing medical expenses?
A) Coverage F only.
B) This loss is excluded because it was caused by an animal owned by the insured.
C) Either Coverage E or Coverage F.
D) Coverage E only. - ✔✔C) Either Coverage E or Coverage F.
Explanation: This loss would be covered under Coverage E if John is determined to be
legally liable for the loss, or Coverage F. Loss caused by an animal owned by the
insured is not excluded under Coverage E or F.
Reference: 7.6.1 and 7.6.2 in the License Exam Manual
✔✔Which of the following is NOT a peril covered under the personal property coverage
in the HO-3-Special Form?
A) Hail
B) Water damage
C) Freezing
D) Malicious mischief - ✔✔B) Water damage
Explanation: Water damage is specifically excluded. This includes, for example,
damage caused by flood, tidal water, water that backs up through the sewers, or water
discharged from a sump pump.
Reference: 7.5.2.1 in the License Exam Manual
✔✔When an insurance company cancels a policy, what method is used to determine
the premium due?
A) Pro rate
B) Short-rate
, C) Premature
D) Flat - ✔✔A) Pro rate
Explanation: When the insurer cancels a policy, the premium refund is determined on a
pro rata basis. Under this method, the premium refund equals the premium paid for the
unexpired term of the policy. A short-rate method is used when the insured cancels the
policy. A policy terminated by either the insured or insurer on its effective date results in
a flat cancellation. The entire premium is returned to the policy holder. There is no
premature method of determining how much premium is due.
Reference: 3.4.3 in the License Exam Manual
✔✔The following perils may be insured against under a basic dwelling policy EXCEPT:
A) lightning.
B) vandalism and malicious mischief.
C) flood.
D) fire. - ✔✔C) flood.
Explanation: Water damage, including flooding, is not a covered peril under a dwelling
policy. Fire and lightning are covered perils on the Basic Form, and vandalism and
malicious mischief is available for an additional premium.
Reference: 6.4.1.1 in the License Exam Manual
✔✔Which of the following types of property is NOT covered by a dwelling policy?
A) 3 apartment dwellings
B) Row houses
C) Farm dwellings
D) Mobile homes on permanent foundations - ✔✔C) Farm dwellings
Explanation: Properties eligible for dwelling policies include mobile homes on
permanent foundations, townhouses, row houses, and dwellings containing up to 4
apartments. Farm dwellings are not covered by dwelling or homeowners policies. They
must be insured under the farm program policy.
Reference: 6.3.2 in the License Exam Manual
✔✔All of the following are excluded under collision or Other than Collision coverages
EXCEPT
A) damages to awnings, cabanas, or other equipment
B) damage due to wear and tear
C) road damages to tires
2026/2027 QUESTIONS AND SOLUTIONS RATED A+
✔✔The Director gives approval to an insurer to do business in Arizona with a certificate
of
A) attachment
B) adhesion
C) authority
D) admittance - ✔✔C) authority
Explanation: Insurers must hold a certificate of authority from the Director before they
can transact insurance business in Arizona. A certificate of authority indicates that a
company meets the state's standards to operate as an insurer and to transact
insurance.
Reference: See State Supplement
✔✔If a vehicle collides with a boulder that came tumbling down the side of a mountain,
what coverage would pay for the damage?
A) Collision
B) Uninsured motorist
C) Other than Collision
D) Supplemental payments - ✔✔C) Other than Collision
Explanation: Other than collision coverage pays for direct and accidental losses to a
vehicle including colliding with falling objects such as a boulder.
Reference: 8.12.1 in the License Exam Manual
✔✔If death results from a compensable injury, the maximum amount of coverage paid
under workers compensation for burial expenses is:
A) $1,000
B) $4,000
C) $5,000
D) $2,000 - ✔✔C) $5,000
Explanation: If death results from a compensable injury, the maximum amount of
coverage paid under workers' compensation for burial expenses is $5,000.
Reference: See State Supplement
,✔✔Jeffrey bought a car yesterday for his daughter to drive to school and her job. Under
Jeffrey's automobile policy, this car is considered
A) a nonowned automobile
B) an uninsured automobile
C) a temporary substitute automobile
D) an owned automobile - ✔✔D) an owned automobile
Explanation: A newly acquired automobile is an owned automobile that must be an
eligible vehicle. For any coverage except Coverage for Damage to Your Auto, this car
will have the broadest coverage provided for any of the cars listed on the declarations
until it is added to the policy. It must be insured within 14 days after the insured
becomes the owner.
Reference: 8.4 in the License Exam Manual
✔✔A contract in which one insurer cedes all or part of a risk to another insurer is known
as:
A) assuming insurance
B) retro insurance
C) reinsurance
D) a participating policy - ✔✔C) reinsurance
Explanation: In a reinsurance contract, an insurer protects itself from loss or liability
arising from an original contract of insurance by insuring itself through another insurer.
Reinsurance is the spreading or sharing of a risk too large for one insurer by ceding part
of the risk to another company or reinsurer.
Reference: 1.5.4 in the License Exam Manual
✔✔A dwelling policy can be used to insure all of the following EXCEPT
A) an apartment building with 6 units
B) rental homes
C) lake cabins
D) duplexes - ✔✔A) an apartment building with 6 units
Explanation: A dwelling policy may be used to insure a building with up to 4 units.
Reference: 6.3.2 in the License Exam Manual
✔✔Medical Payments Coverage is Part B in the personal automobile policy. All of the
following statements about medical payments coverage are correct EXCEPT
,A) coverage is provided for the named insured if hit by a car while walking a road
B) Part B covers reasonable expenses for services incurred within 5 years of the date of
injury
C) no coverage is available if the vehicle is being used as a residence
D) coverage is available if an injury occurs while getting into or out of a vehicle - ✔✔B)
Part B covers reasonable expenses for services incurred within 5 years of the date of
injury
Explanation: Part B covers reasonable and necessary medical and funeral expenses
incurred within the first 3 years- not 5 years- of the date of injury, regardless of fault.
Reference: 8.8.1 in the License Exam Manual
✔✔John's dog bites a friend who is visiting John's house. Which part of John's
homeowners policy, if any, would cover the visitor's ensuing medical expenses?
A) Coverage F only.
B) This loss is excluded because it was caused by an animal owned by the insured.
C) Either Coverage E or Coverage F.
D) Coverage E only. - ✔✔C) Either Coverage E or Coverage F.
Explanation: This loss would be covered under Coverage E if John is determined to be
legally liable for the loss, or Coverage F. Loss caused by an animal owned by the
insured is not excluded under Coverage E or F.
Reference: 7.6.1 and 7.6.2 in the License Exam Manual
✔✔Which of the following is NOT a peril covered under the personal property coverage
in the HO-3-Special Form?
A) Hail
B) Water damage
C) Freezing
D) Malicious mischief - ✔✔B) Water damage
Explanation: Water damage is specifically excluded. This includes, for example,
damage caused by flood, tidal water, water that backs up through the sewers, or water
discharged from a sump pump.
Reference: 7.5.2.1 in the License Exam Manual
✔✔When an insurance company cancels a policy, what method is used to determine
the premium due?
A) Pro rate
B) Short-rate
, C) Premature
D) Flat - ✔✔A) Pro rate
Explanation: When the insurer cancels a policy, the premium refund is determined on a
pro rata basis. Under this method, the premium refund equals the premium paid for the
unexpired term of the policy. A short-rate method is used when the insured cancels the
policy. A policy terminated by either the insured or insurer on its effective date results in
a flat cancellation. The entire premium is returned to the policy holder. There is no
premature method of determining how much premium is due.
Reference: 3.4.3 in the License Exam Manual
✔✔The following perils may be insured against under a basic dwelling policy EXCEPT:
A) lightning.
B) vandalism and malicious mischief.
C) flood.
D) fire. - ✔✔C) flood.
Explanation: Water damage, including flooding, is not a covered peril under a dwelling
policy. Fire and lightning are covered perils on the Basic Form, and vandalism and
malicious mischief is available for an additional premium.
Reference: 6.4.1.1 in the License Exam Manual
✔✔Which of the following types of property is NOT covered by a dwelling policy?
A) 3 apartment dwellings
B) Row houses
C) Farm dwellings
D) Mobile homes on permanent foundations - ✔✔C) Farm dwellings
Explanation: Properties eligible for dwelling policies include mobile homes on
permanent foundations, townhouses, row houses, and dwellings containing up to 4
apartments. Farm dwellings are not covered by dwelling or homeowners policies. They
must be insured under the farm program policy.
Reference: 6.3.2 in the License Exam Manual
✔✔All of the following are excluded under collision or Other than Collision coverages
EXCEPT
A) damages to awnings, cabanas, or other equipment
B) damage due to wear and tear
C) road damages to tires
